Financial Accounting Connect Access Card
Financial Accounting Connect Access Card
5th Edition
ISBN: 9781260159622
Author: J. David Spiceland
Publisher: Mcgraw-Hill
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Chapter 6, Problem 6PB

1.

To determine

Record the transactions of Incorporation Y, assuming that it uses a FIFO perpetual inventory system to maintain its inventory records.

1.

Expert Solution
Check Mark

Explanation of Solution

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

First-in First-Out method (FIFO):

Under FIFO method the cost of first acquired items is assigned to sales first. The value of the closing stock includes the cost of recently acquired item.

November 2: Purchased 90 units at the rate of $100 each on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 2Inventory9,000
Accounts Payable9,000
(To record the purchase of inventories on account)

Table (1)

  • Inventory is an asset and increased by $9,000. Therefore, debit the inventory account with $9,000.
  • Accounts payable is a liability and increased by $9,000. Therefore, credit the accounts payable account with $9,000.

November 3: Paid a freight charge of $231:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 3Inventory231
Cash231
(To record the payment of freight charge)

Table (2)

  • Inventory is an asset and increased by $231. Therefore, debit the merchandised inventory account with $231.
  • Cash is an asset and decreased by $231. Therefore, credit the cash account with $231.

November 9: Inventories 13 units returned to suppliers:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 9Accounts Payable1,300
Inventory1,300
(To record the purchase return to the supplier)

Table (3)

Working Note:

Value of inventory returned=Number of units returned×Rate per unit=13 units×$100=$1,300

  • Accounts Payable is liability and decreased by $1,300. Therefore, debit the accounts payable account with $1,300.
  • Inventory is an asset and decreased by $1,300. Therefore, credit the merchandised inventory account with $1,300.

November 11: Company T paid full amount due:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 11Accounts Payable7,700
Inventory231
Cash7,469
(To record the payment made to the supplier)

Table (4)

Working Note:

Compute the amount of purchase discount:

Dicount Amount = [(Invoice PricePurchase Return) × Rate of Discount]=($9,000$1,300)×2%=$231 (3)

Compute the amount due to the supplier:

Compute the accounts payable:

Invoice price = $9,000 (1)

Purchase return = $1,300 (2)

Accounts payable=(Invoice price Purchase return) =$9,000$1,300=$7,700 (4)

Compute the total amount due to the suppliers:

Accounts receivables = $7,700(4)

Purchase discount = $231 (3)

Amount due to the suppliers=(Accounts Receviables Purchase discount)=$7,700$231=$7,469 (5)

  • Accounts Payable is a liability and decreased by $7,700. Therefore, debit the accounts payable account with $7,700.
  • Merchandised inventory is an asset and decreased by $231. Therefore, credit the merchandised inventory account with $231.
  • Cash is an asset and decreased by $7,469. Therefore, credit cash account with $7,469.

November 16: Sold 100 units on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 16Accounts Receivable14,000
Sales Revenue14,000
(To record the sale of inventory)

Table (5)

  • Accounts Receivable is an asset account and increased by $14,000. Therefore, debit the accounts Receivable account with $14,000.
  • Sales revenue is an equity account and increased by $14,000. Therefore, credit the sales revenue account with $14,000.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 16Cost of Goods Sold9,640
Inventory9,640
(To record the cost of goods sold)

Table (6)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units before November 2×Cost per unit)+(Total number of units after November 2×Cost per unit)]=[(60units×$94)+(100units×$40)]=$9,640

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $8,440. Therefore, debit cost of goods sold account with $9,640.
  • Inventory is an asset and decreased by $8,440. Therefore, credit the inventory account with $9,640.

November 20: Received full payment from customers on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 19Cash14,000
Accounts receivable14,000
(To record the full payment received from the customers on account)

Table (7)

  • Cash is an asset account and it is increased by $14,000. Therefore, debit the cash account with $14,000.
  • Accounts receivable is an asset account and it is decreased by $14,000. Therefore, credit the accounts receivable account with $14,000.

November 21: Purchased 70 units at the rate of $104 each on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 21Inventory7,280
Accounts Payable7,280
(To record the purchase of inventories on account)

Table (8)

  • Inventory is an asset and increased by $7,280. Therefore, debit the inventory account with $7,280.
  • Accounts payable is a liability and increased by $7,280. Therefore, credit the accounts payable account with $7,280.

November 24: Sold 90 units:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 24Cash12,600
Sales Revenue12,600
(To record the sale of inventory)

Table (9)

  • Cash is an asset account and increased by $12,600. Therefore, debit the cash account with $12,600.
  • Sales revenue is an equity account and increased by $12,600. Therefore, credit the sales revenue account with $12,600.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 24Cost of Goods Sold9,212
Inventory9,212
(To record the cost of goods sold)

Table (10)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units remainingafter November 16 sale×Cost per unit)+(Total number of units onNovember 20 purchase×Cost per unit)]=[(37units×$100)+(53units×$104)]=$9,212

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $9,212. Therefore, debit cost of goods sold account with $9,212.
  • Inventory is an asset and decreased by $9,212. Therefore, credit the inventory account with $9,212.

2.

To determine

Record the necessary adjustment for lower of cost and net realizable value.

2.

Expert Solution
Check Mark

Explanation of Solution

Record the necessary adjustment for lower of cost and net realizable value.

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 30Cost of Goods Sold391
Inventory391
(To record the adjustment for lower of cost and net realizable value)

Table (11)

  • Cost of goods sold is an expense and increased which has decreased the equity by $391. Therefore, debit cost of goods sold account with $391.
  • Merchandised inventory is an asset and decreased by $391. Therefore, credit the merchandised inventory account with $391.

Working note:

Calculation of Cost of Ending Inventory
DetailsNumber of UnitsRate per Unit ($)Total Cost ($)
November 21171041,768
Ending Inventory171,768

Table (12)

The ending inventory is adjusted at the cost of the inventory or net realizable value whichever is less. The cost of the FIFO ending inventory is (17Units×$104) $1,768 whereas the net realizable value of ending inventory (17Units×$81) is $1,377. Hence, the net realizable value of $391 which is the lesser amount is the amount to which the ending inventory is to be adjusted to.

3.

To determine

Prepare the top section of the multiple-step income statement through gross profit for the month of November after the adjustment for lower of cost and net realizable value.

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare the top section of the multiple-step income statement through gross profit for the month of November after the adjustment for lower of cost and net realizable value.

Incorporation Y
Multi-step Income Statement (Partial)
For the month of November
Particulars$
Net sales26,600
Less: Cost of goods sold19,243
Gross Profit7,357

Table (12)

Cost of goods sold=(Cost of units sold+Write down to net realizable value)=($9,640+$9,212)+$391=($18,852)+$391=$19,243

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Chapter 6 Solutions

Financial Accounting Connect Access Card

Ch. 6 - 11. Maxwell Corporation has the following...Ch. 6 - Prob. 12SSQCh. 6 - Prob. 13SSQCh. 6 - Prob. 14SSQCh. 6 - Prob. 15SSQCh. 6 - Prob. 1AECh. 6 - Prob. 2AECh. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - 6. What is a multiple-step income statement? What...Ch. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQCh. 6 - Prob. 11RQCh. 6 - 12. Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Prob. 21RQCh. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 1BECh. 6 - Prob. 2BECh. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Prob. 6BECh. 6 - Prob. 7BECh. 6 - Prob. 8BECh. 6 - Prob. 9BECh. 6 - Prob. 10BECh. 6 - Prob. 11BECh. 6 - Prob. 12BECh. 6 - Prob. 13BECh. 6 - Prob. 14BECh. 6 - Prob. 15BECh. 6 - Prob. 16BECh. 6 - BE6-17 Refer to the information in BE6-10, but now...Ch. 6 - Prob. 18BECh. 6 - Prob. 19BECh. 6 - BE6–20 Refer to the information in BE6–13, but now...Ch. 6 - Prob. 21BECh. 6 - Prob. 22BECh. 6 - Prob. 1ECh. 6 - Prob. 2ECh. 6 - Prepare a multiple-step income statement and...Ch. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - E6-6 Bingerton Industries began the year with...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 1PACh. 6 - Prob. 2PACh. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Prob. 6PACh. 6 - Prepare a multiple-step Income statement and...Ch. 6 - P6-8A Wawa Food Markets is a convenience store...Ch. 6 - Prob. 9PACh. 6 - Correct inventory Understatement and calculate...Ch. 6 - Prob. 1PBCh. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Prob. 6PBCh. 6 - Prob. 7PBCh. 6 - Prob. 8PBCh. 6 - Prob. 9PBCh. 6 - Prob. 10PBCh. 6 - Prob. 1APCh. 6 - American Eagle Outfitters, Inc. AP6-2 Financial...Ch. 6 - Prob. 3APCh. 6 - Prob. 4APCh. 6 - Ethics AP6-5 Horizon Corporation manufactures...Ch. 6 - Prob. 6APCh. 6 - Prob. 7APCh. 6 - Prob. 8AP
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